At one point, the code was traded for as much as US$15,000 on the underground criminal markets, according to iDefense, the computer security branch of VeriSign, citing a blog post from the Chinese team.

The problem in Internet Explorer 7 means a computer could be infected with malicious software merely by visiting a Web site, one of the most dangerous computer security scenarios. It affects computers running IE7 on Windows XP regardless of the service pack version, Windows Server 2003 running Service Pack 1 or 2, Windows Vista and Windows Vista with Service Pack 1 as well as Windows Server 2008.

Microsoft has acknowledged the issue but not indicated when it will release a patch.

The vulnerability was first revealed earlier this week by the Chinese security team "knownsec." Knownsec said on Tuesday they mistakenly released exploit code thinking that the problem was already patched, iDefense said.

"This is our mistake," knownsec said in a Chinese-language research note.

That mistake could mean that more hackers will try to build Web sites in order to compromise users PCs since the exploit code is more freely floating around on the Internet. However, other information indicates that hackers already knew how it worked before the release. According to knownsec, a rumor surfaced earlier in the year about a bug in Internet Explorer, iDefense wrote.

Information on the vulnerability was allegedly sold in November on the underground back market for US$15,000. Earlier this month, the exploit was sold second or third hand for $650, said iDefense, citing knownsec.

Eventually, someone developed a Trojan horse program -- one that appears harmless but is actually malicious -- that is designed to steal information related to Chinese-language PC games, a popular target for hackers.

Now, other Web sites are being built that incorporate the exploit. Hackers then usually try to get people to visit those sites through spam or unsolicited instant messages. The Shadowserver Foundation has published a list of domains that are hosting the exploit and subsequent Trojan, although users are highly advised not to visit the Web sites. Most are ".cn" domains, the top-level domain for China.

Researchers are also seeing hackers incorporate the IE7 exploit into Web sites that have been compromised by the so-called SQL injection attacks.

Those Web sites, due to security problems, have been hacked and then rigged to pull content from other harmful Web sites in a window called an iframe, said Carl Leonard, Websense's threat research manager for Europe. Using JavaScript, the iframe automatically redirects users to a malware-infested site that tries to infect the PC.

Hundreds of thousands of Web sites were affected earlier this year; a huge number of those sites still have not been fixed, Leonard said. The sites serve up exploits for vulnerabilities that have been patched.

But the IE7 vulnerability is especially dangerous since there's no patch. It means a user could visit, for example, a Web site run by a local government and end up infected.

Those dangers could prompt Microsoft to move faster to make a patch. Patches, however, take a lot of engineering effort to ensure they don't bungle up other applications. In the meantime, hackers can expand their reach to infect as many PCs as possible.

"I'll probably say with the key browser being vulnerable that Microsoft will probably have to do something before the next patch Tuesday," Leonard said.

iDefense said in a note that the vulnerability is "really nasty" and that computer security professionals could be in for a rough ride. Microsoft issued its biggest group of patches in five years on Tuesday, and is not due for a regular patch release until Jan. 13, although it could opt to do an emergency release.

"Chances are this will be unpatched for around about a month, and that leaves plenty of time for attackers to take advantage," said Toralv Dirro, a security strategist based in Germany for McAfee's Avert Labs. "This should be taken pretty seriously."

iDefense said there aren't many options for users to defend themselves, but there is an easy one. The SANS Institute, which runs computer security training courses, recommended that people use a browser other than Internet Explorer.

In an advisory, Microsoft said users should put IE7 in "protected" mode, which causes warning prompts to appear if something tries to change system files or settings. But that protected mode is only available to users running Windows Vista.

Another mitigating factor is the default security level setting for IE7 running on Windows Server 2003 and Windows Server 2008. It is set to "high," which blocks file downloads, Microsoft said. Generally, administrators should not browse the Web from the server.

Toralv said it could be tough to get the Internet Service Providers hosting the dodgy Web sites to take them offline, since the process is time intensive and service providers can be slow to respond.

The IE vulnerability compounds what looks to be a tough month for Microsoft, with the publication of another 0-day vulnerability in Microsoft's WordPad application earlier this week.

That problem is somewhat less severe since a user would have be tricked into opening a maliciously-crafted document attached to an e-mail. It also does not affect computers running Windows XP Service Pack 3 and Vista.

It does, however, affect Windows 2000 Service Pack 4, Windows XP Service Pack 2, Windows Server 2003 Service Pack 1 and Windows Server 2003 Service Pack 2, according to Microsoft.

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